ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
ANNUAL REPORT
JUNE 30, 1998
ALLIANCE CAPITAL
LETTER TO SHAREHOLDERS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
August 27, 1998
Dear Shareholder:
We are pleased to report to you on our performance, strategy and outlook for
the Alliance Bond Fund U.S. Government Portfolio, over the annual reporting
period ended June 30, 1998. The Fund is designed for investors who seek high
current income, consistent with safety of principal. The Fund invests in a
diversified portfolio of U.S. Government securities all of which are backed by
the full faith and credit of the United States.
INVESTMENT RESULTS
The following table provides the investment results for the Alliance Bond Fund
U.S. Government Portfolio for the six and 12-month periods ended June 30, 1998.
For comparison, we have included the total returns for the U.S. Treasury
market, represented by the unmanaged Lehman Brothers (LB) Government Bond
Index, as well as the average results for the Lipper universe of general U.S.
government funds.
For the six-month period ended June 30, 1998, your Fund trailed its benchmark,
the LB Government Bond Index. The performance of the Fund was enhanced over the
period by our allocation to fixed-rate mortgage-backed securities. However, the
Fund's investment in callable Treasuries detracted from performance as the
yield curve flattened. Additionally, our weighting in structured mortgage
securities lagged Treasury performance. We retain our positions in these
sectors because of their contribution to the Fund's attractive current income
characteristics.
INVESTMENT RESULTS*
Periods Ended June 30, 1998
TOTAL RETURNS
6 MONTHS 12 MONTHS
--------- ---------
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
Class A 3.55% 10.02%
Class B 3.17% 9.20%
Class C 3.17% 9.21%
LEHMAN BROTHERS GOVERNMENT BOND INDEX 4.18% 11.25%
LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE 3.62% 10.17%
* THE FUND'S INVESTMENT RESULTS ARE TOTAL RETURNS FOR THE PERIODS AND ARE
BASED ON THE NET ASSET VALUE OF EACH CLASS OF SHARES. ALL FEES AND EXPENSES
RELATED TO THE OPERATION OF THE FUND HAVE BEEN DEDUCTED, BUT NO ADJUSTMENT HAS
BEEN MADE FOR SALES CHARGES THAT MAY APPLY WHEN SHARES ARE PURCHASED OR
REDEEMED. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
THE LEHMAN BROTHERS GOVERNMENT BOND INDEX IS COMPOSED OF THE U.S. TREASURY
BOND AND AGENCY BOND INDICES, THE 1-3 YEAR GOVERNMENT INDEX AND THE 20+ YEAR
TREASURY INDEX. THE UNMANAGED LIPPER GENERAL U.S. GOVERNMENT FUNDS AVERAGE
(LIPPER AVERAGE) IS BASED ON THE PERFORMANCE OF A UNIVERSE OF FUNDS THAT INVEST
AT LEAST 65% OF THEIR ASSETS IN U.S. GOVERNMENT AND AGENCY ISSUES. THESE FUNDS
HAVE GENERALLY SIMILAR INVESTMENT OBJECTIVES TO YOUR FUND, ALTHOUGH INVESTMENT
POLICIES FOR THE VARIOUS FUNDS MAY DIFFER. IN PARTICULAR, MANY FUNDS IN THE
LIPPER U.S. GOVERNMENT UNIVERSE ARE NOT REQUIRED TO INVEST SOLELY IN SECURITIES
BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES. FOR THE SIX AND
12-MONTH PERIODS ENDED JUNE 30, 1998, THE LIPPER AVERAGE CONSISTED OF 194 AND
181 FUNDS, RESPECTIVELY. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX OR AN
AVERAGE.
ADDITIONAL INVESTMENT RESULTS APPEAR ON PAGE 3.
ECONOMIC OVERVIEW
Over the six-month period ended June 30, 1998, the U.S. economy continued its
healthy expansion coupled with low inflation. Fueled by strong domestic demand,
first quarter 1998 Gross Domestic Product (GDP), a standard measure of economic
growth, expanded at an annualized rate of 5.5%. In the second quarter of 1998
annualized growth slowed to 1.6%, as strong domestic demand was offset by
weakening industrial production caused by lower exports to Asia. The Consumer
Price Index (CPI), a measure of inflation, recorded a 1.7% increase
year-over-year for the period ended June 30, despite the tightest labor market
in 28 years. With inflation benign and growth slowing, the Federal Reserve left
interest rates unchanged. Helped by strong economic fundamentals and
uncertainty overseas, the U.S. dollar continued to strengthen against the major
currencies.
1
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
MARKET OVERVIEW
Through the six-month period ended June 30, 1998, the U.S. bond market
continued to climb as investors, concerned about events in the emerging
markets, sought the relative safety of U.S. Treasuries. The U.S. Treasury
market posted solid returns with longer-term Treasuries outperforming
shorter-term Treasuries. When overseas markets stabilized at the beginning of
1998, following the volatility in the fourth quarter of 1997, investors' focus
shifted to short-term expectations regarding U.S. monetary policy. In May 1998,
renewed volatility in Asia, weakness in the Japanese yen, and fiscal problems
in Russia caused a rally in the Treasury market and pushed bond yields lower.
The rally was compounded by the strong U.S. dollar which attracted overseas
investors in a flight-to-quality. These factors combined to create favorable
demand for longer-term Treasury securities, which led to a flattening of the
yield curve. Treasury yields fell across the maturity spectrum with longer-term
maturities falling most. Over the six-month period ended June 30, 1998, the
two-year Treasury yield fell 17 basis points to 5.48%, and the 30-year Treasury
yield dropped 30 basis points to 5.63%.
While posting more significant gains during the beginning of the period, the
mortgage sector performed well during the six months ended June 30, 1998.
However, the sector's performance deteriorated towards the end of the reporting
period as declining interest rates created an opportunity for homeowners to
refinance. The refinancing created prepayments that were higher than analysts'
expectations. Particularly affected were adjustable-rate mortgages which
experienced higher levels of prepayments as interest rates declined and the
yield curve flattened. In this environment, adjustable-rate mortgage holders
are inclined to refinance into a fixed-rate mortgage at a similar low rate. As
a result, prepayments accelerated and spreads widened in the adjustable-rate
mortgage sector.
INVESTMENT STRATEGY
During the period we maintained the portfolio's asset weighting consistent with
the investment objectives of the Fund while seeking a high level of current
income. In addition to U.S. Treasuries, the portfolio thus continues to be
invested in "full faith and credit" agencies and GNMA's.
OUTLOOK
We anticipate slowing global growth and continued benign inflation as Asia
exports cheaper goods to the world and imports less from abroad. With inflation
subdued, we expect monetary policy in the U.S. to remain substantially
unchanged for most of 1998. The current slowing of growth in the U.S. is
expected to continue with 1998 GDP estimated around 3.0%. Strong domestic
demand will continue to be offset by weakening industrial production. We
anticipate that U.S. interest rates will remain low as the U.S. fixed-income
markets continue to provide a safe haven for investors during periods of
volatility overseas.
Thank you for your continued interest and investment in the Alliance Bond Fund
U.S. Government Portfolio. We look forward to reporting to you in the coming
months.
Sincerely,
John D. Carifa
Chairman and President
Patricia J. Young
Senior Vice President
Jeffrey S. Phlegar
Vice President
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, GUARANTEED OR ENDORSED
BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
2
INVESTMENT OBJECTIVE AND POLICIES
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
Alliance Bond Fund U.S. Government Portfolio seeks as high a level of current
income as is consistent with safety of principal. The Fund is a diversified,
open-end investment company that invests solely in U.S. Government securities
that are backed by the full faith and credit of the U.S. Government.
INVESTMENT RESULTS
_______________________________________________________________________________
NAV AND SEC AVERAGE ANNUAL TOTAL RETURNS AS OF JUNE 30, 1998
CLASS A SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 10.02% 5.33%
Five Years 5.22% 4.32%
10 Years 7.73% 7.26%
SEC Yield** 6.09%
CLASS B SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 9.20% 6.20%
Five Years 4.45% 4.45%
Since Inception*(a) 6.12% 6.12%
SEC Yield** 5.66%
CLASS C SHARES
WITHOUT WITH
SALES CHARGE SALES CHARGE
------------ ------------
One Year 9.21% 8.21%
Five Years 4.45% 4.45%
Since Inception* 4.73% 4.73%
SEC Yield** 5.66%
The Fund's investment results represent Average Annual Total Returns. The NAV
and SEC returns reflect reinvestment of dividends and/or capital gains
distributions in additional shares without (NAV) and with (SEC) the effect of
the 4.25% maximum front-end sales charge for Class A or applicable contingent
deferred sales charge for Class B (3% year 1, 2% year 2, 1% year 3, 0% year 4);
and for Class C shares (1% year 1). Returns for Class A shares do not reflect
the imposition of the 1-year 1% contingent deferred sales charge for accounts
over $1,000,000.
Past performance does not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost.
* Inception: 9/30/91 Class B; 5/3/93 Class C.
** SEC Yields are based on SEC guidelines and are calculated on 30 days ended
June 30, 1998.
(a) Assumes conversion of Class B shares into Class A shares after six years.
3
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
GROWTH OF A $10,000 INVESTMENT
6/30/88 TO 6/30/98
$25,000
$21,000
$17,000
$13,000
$10,000
$9,000
LB GOV'T BOND INDEX:$23,402
LIPPER GENERAL U.S. GOV'T FUNDS AVERAGE:$21,404
U.S. GOVERNMENT PORTFOLIO CLASS A:$20,150
6/30/88 6/30/89 6/30/90 6/30/91 6/30/92 6/30/93 6/30/94
6/30/95 6/30/96 6/30/97 6/30/98
This chart illustrates the total value of an assumed $10,000 investment in
Alliance Bond Fund U.S. Government Portfolio Class A shares (from 6/30/88 to
6/30/98) as compared to the performance of an appropriate broad-based index.
The chart reflects the deduction of the maximum 4.25% sales charge from the
initial $10,000 investment in the Fund and assumes the reinvestment of
dividends and capital gains. Performance for Class B and Class C shares will
vary from the results shown above due to differences in expenses charged to
those classes. Past performance is not indicative of future results, and is not
representative of future gain or loss in capital value or dividend income.
The unmanaged Lehman Brothers (LB) Government Bond Index is composed of the
Treasury Bond and Agency Bond Indices.
The Lipper General U.S. Government Funds Average reflects performance of 53
funds (based on the number of funds in the average from 6/30/88 to 6/30/98).
These funds have generally similar investment objectives to Alliance Bond Fund
U.S. Government Portfolio, although the investment policies of some funds
included in the average may vary.
When comparing Alliance Bond Fund U.S. Government Portfolio to the index and
average shown above, you should note that no charges or expenses are reflected
in the performance of the index. Lipper results include fees and expenses.
U.S. Government Portfolio
Lehman BrothersGovernment Bond Index
Lipper General U.S. Government Funds Average
4
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-98.8%
U.S. TREASURY SECURITIES-70.4%
U.S. TREASURY BONDS-65.7%
8.00%, 11/15/21 $ 56,400 $ 72,683,808
8.125%, 5/15/21 34,100 44,399,223
8.875%, 8/15/17 39,000 53,167,920
11.625%, 11/15/02 11,500 14,173,750
12.00%, 8/15/13 71,085 105,394,886
12.50%, 8/15/14 65,150 101,471,125
14.00%, 11/15/11 110,900 172,051,369
-------------
563,342,081
U.S. TREASURY NOTE-4.6%
8.75%, 8/15/00 36,800 39,146,000
U.S. TREASURY BILL-0.1%
4.50%, 7/09/98 825 824,175
Total U.S. Treasury Securities
(cost $589,798,040) 603,312,256
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-19.8%
Collateralized Mortgage Obligations
Series 1997-8
7.00%, 9/16/21 16,000 16,090,080
Series 1997-10 Cl.C
9.50%, 4/16/25 26,250 28,629,037
Series 1997-11 Cl.C
9.50%, 10/20/25 28,052 30,537,127
-------------
75,256,244
Mobile Homes
8.00%, 8/15/16 583 604,410
8.25%, 6/15/05-3/15/16 4,177 4,349,930
8.50%, 5/15/08-1/15/12 899 941,134
8.75%, 11/15/00-1/15/12 3,043 3,195,380
9.00%, 10/15/11-1/15/12 1,054 1,105,944
9.25%, 1/15/13 243 259,620
9.75%, 5/15/99-1/15/13 4,857 5,178,353
10.25%, 2/15/03-6/15/13 4,500 4,799,652
-------------
20,434,423
Project Loans
8.50%, 11/15/12-11/15/31 14,438 15,146,739
Single Family Homes
7.50%, 9/15/21-9/15/24 1,476 1,529,860
8.00%, 3/15/12 49,094 50,950,198
9.00%, 7/20/24-9/20/24 6,008 6,393,371
-------------
58,873,429
Total Government National Mortgage Association
(cost $172,864,327) 169,710,835
FEDERAL AGENCY SECURITIES-8.6%
Financial Assistance Corp.
9.45%, 11/21/03 26,000 26,346,580
9.50%, 4/16/04 31,506 32,441,413
United States Agency for
International Development
7.11%, 2/01/12 14,000 15,190,000
Total Federal Agency Securities
(cost $81,483,529) 73,977,993
TOTAL INVESTMENTS-98.8%
(cost $844,145,896) 847,001,084
Other assets less liabilities-1.2% 10,393,411
NET ASSETS-100% $857,394,495
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $844,145,896) $ 847,001,084
Cash 4,282
Interest receivable 14,321,861
Receivable for capital stock sold 4,243,795
Total assets 865,571,022
LIABILITIES
Payable for capital stock redeemed 4,856,468
Dividends payable 1,603,541
Advisory fee payable 1,196,743
Distribution fee payable 117,808
Accrued expenses 401,967
Total liabilities 8,176,527
NET ASSETS $ 857,394,495
COMPOSITION OF NET ASSETS
Capital stock, at par $ 113,214
Additional paid-in capital 1,065,882,616
Distributions in excess of net investment income (1,603,541)
Accumulated net realized loss on investment transactions (209,847,930)
Net unrealized appreciation of investments and other assets 2,850,136
$ 857,394,495
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($352,748,821/
46,592,789 shares of capital stock issued and outstanding) $7.57
Sales charge--4.25% of public offering price .34
Maximum offering price $7.91
CLASS B SHARES
Net asset value and offering price per share ($390,253,252/
51,518,944 shares of capital
stock issued and outstanding) $7.57
CLASS C SHARES
Net asset value and offering price per share ($114,392,422/
15,101,775 shares of capital stock issued and outstanding) $7.57
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $73,317,122
EXPENSES
Advisory fee $4,949,100
Distribution fee - Class A 1,061,547
Distribution fee - Class B 4,316,412
Distribution fee - Class C 1,161,590
Transfer agency 1,169,281
Custodian 212,134
Printing 141,221
Administrative 116,256
Audit and legal 81,258
Taxes 73,971
Registration 51,061
Directors' fees 12,225
Miscellaneous 10,342
Total expenses 13,356,398
Net investment income 59,960,724
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 4,547,564
Net change in unrealized depreciation of
investments and other assets 17,676,067
Net gain on investment transactions 22,223,631
NET INCREASE IN NET ASSETS FROM OPERATIONS $82,184,355
See notes to financial statements.
7
STATEMENT OF CHANGES
IN NET ASSETS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 59,960,724 $ 76,613,835
Net realized gain (loss) on investment
transactions 4,547,564 (17,906,339)
Net change in unrealized appreciation
(depreciation) of investmentsand other assets 17,676,067 4,101,240
Net increase in net assets from operations 82,184,355 62,808,736
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (25,072,563) (28,676,683)
Class B (27,489,182) (38,040,411)
Class C (7,398,979) (9,425,145)
Tax return of capital
Class A (1,242,637) (537,368)
Class B (1,362,408) (712,834)
Class C (366,705) (176,616)
CAPITAL STOCK TRANSACTIONS
Net decrease (104,135,594) (235,558,940)
Total decrease (84,883,713) (250,319,261)
NET ASSETS
Beginning of year 942,278,208 1,192,597,469
End of year $ 857,394,495 $ 942,278,208
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund, which is a Maryland corporation, operates as a series company
currently comprised of two portfolios: the Corporate Bond Portfolio and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. The financial statements and notes
include the operations of the U.S. Government Portfolio (the "Portfolio") only.
The Portfolio offers Class A, Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 3% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares six years after the end of the calendar month of purchase. Class C
shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each
class bears different distribution expenses and has exclusive voting rights
with respect to its distribution plan. The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last reported sale price on such exchange on the day of valuation or, if there
was no sale on such day, the last bid price quoted on such day. If no bid
prices are quoted, then the security is valued at the mean of the bid and asked
prices as obtained on that day from one or more dealers regularly making a
market in that security. Securities traded on the over-the-counter market are
valued at the mean of the closing bid and asked prices provided by two or more
dealers regularly making a market in such securities. U.S. government
securities and other debt securities which mature in 60 days or less are valued
at amortized cost unless this method does not represent fair value. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by, or in accordance with procedures approved by,
the Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. TAXES
It is the Portfolio's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Portfolio amortizes premiums and
accretes discounts as adjustments to interest income. Investment gains and
losses are determined on the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Portfolio are borne on a
pro-rata basis by each settled class of shares, based on the proportionate
interest in the Portfolio represented by the net assets of such class, except
that the Portfolio's Class B and Class C shares bear higher distribution and
transfer agent fees than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclas sified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
9
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
During the current fiscal year, permanent differences, primarily due to
expiration of capital loss carryforwards and return of capital distributions,
resulted in a net decrease in accumulated net realized loss on investment
transactions and a corresponding decrease in additional paid-in capital and
distributions in excess of net investment income. This reclassification had no
effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P. (the "Adviser"), an advisory fee at a
quarterly rate of .15 of 1% (approximately .60 of 1% on an annual basis) of the
first $500 million of the Portfolio's net assets and .125 of 1% (approximately
.50 of 1% on an annual basis) of its net assets over $500 million, valued on
the last business day of the previous quarter.
Pursuant to the advisory agreement, the Portfolio paid $116,256 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended June 30, 1998.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $820,628 for the year ended June 30, 1998.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor received front-end sales charges of $21,924 from the sale of Class
A shares and $10,096, $291,831 and $31,629 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the year ended June 30, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Portfolio in the amount of $7,204,946, and $4,179,954
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods as long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $21,304,290 and $20,870,217,
respectively, for the year ended June 30, 1998. Purchases and sales of U.S.
government obligations aggregated $1,364,538,957 and $1,517,667,848,
respectively, for the year ended June 30, 1998.
At June 30, 1998, the cost of investments for federal income tax purposes was
$845,609,579. Accordingly, gross unrealized appreciation of investments was
$15,889,181 and gross unrealized depreciation of investments was $14,497,676,
resulting in net unrealized appreciation of $1,391,505.
10
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
At June 30, 1998, the Portfolio had a capital loss carryforward for federal
income tax purposes of $208,384,247, of which $8,257,319 expires in the year
1999; $83,016,947 expires in the year 2003; $61,544,081 expires in the year
2004; $51,829,521 expires in the year 2005 and $3,736,379 expires in the year
2006.
NOTE E: CAPITAL STOCK
There are 600,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 200,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------- ------------ -------------- --------------
CLASS A
Shares sold 10,804,046 7,330,644 $ 81,364,926 $ 54,720,782
Shares issued in
reinvestment of
dividends and
distributions 1,651,986 1,852,073 12,448,223 13,859,387
Shares converted
from Class B 2,908,590 2,400,559 21,971,601 17,892,778
Shares redeemed (16,621,353) (16,635,865) (125,182,615) (124,255,277)
Net decrease (1,256,731) (5,052,589) $ (9,397,865) $ (37,782,330)
CLASS B
Shares sold 6,931,240 5,813,050 $ 52,278,662 $ 43,483,332
Shares issued in
reinvestment of
dividends and
distributions 1,813,058 2,166,310 13,660,347 16,211,718
Shares converted
to Class A (2,908,590) (2,400,559) (21,971,601) (17,892,778)
Shares redeemed (17,960,112) (25,514,220) (135,276,839) (190,768,847)
Net decrease (12,124,404) (19,935,419) $ (91,309,431) $(148,966,575)
CLASS C
Shares sold 4,489,582 3,571,988 $ 34,077,964 $ 26,694,306
Shares issued in
reinvestment of
dividends and
distributions 651,004 544,818 4,904,415 4,070,889
Shares redeemed (5,630,703) (10,605,329) (42,410,677) (79,575,230)
Net decrease (490,117) (6,488,523) $ (3,428,298) $ (48,810,035)
11
FINANCIAL HIGHLIGHTS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .54(a) .57(a) .58 .64 .65
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .72 .47 .14 .77 (.15)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.54) (.57) (.58) (.65) (.65)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.56) (.58) (.58) (.65) (.65)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on
net asset value (b) 10.02% 6.49% 1.74% 10.37% (1.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $352,749 $354,782 $397,894 $463,660 $482,595
Ratio of expenses to average net assets 1.06% 1.02% 1.01% 1.01% 1.02%
Ratio of net investment income to
average net assets 7.08% 7.66% 7.38% 8.27% 7.76%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
12
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .71 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on net
asset value (b) 9.20% 5.69% 1.01% 9.52% (2.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $390,253 $471,889 $628,628 $774,097 $756,282
Ratio of expenses to average net assets 1.76% 1.73% 1.72% 1.72% 1.72%
Ratio of net investment income to
average net assets 6.37% 6.95% 6.67% 7.57% 7.04%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
13
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.83 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .14 (.81)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .72 (.22)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.83
TOTAL RETURN
Total investment return based on net
asset value (b) 9.21% 5.69% 1.01% 9.67% (2.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $114,392 $115,607 $166,075 $181,948 $231,859
Ratio of expenses to average net assets 1.76% 1.72% 1.71% 1.71% 1.70%
Ratio of net investment income to
average net assets 6.38% 6.96% 6.68% 7.59% 6.97%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
14
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
We have audited the accompanying statement of assets and liabilities of
Alliance Bond Fund U.S. Government Portfolio (one of the portfolios comprising
the Alliance Bond Fund, Inc.), including the portfolio of investments, as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of June 30, 1998, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Bond Fund U.S. Government Portfolio at June 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
August 4, 1998
15
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
BOARD OF DIRECTORS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT
RUTH BLOCK (1)
DAVID H. DIEVLER (1)
JOHN H. DOBKIN (1)
WILLIAM H. FOULK, JR. (1)
DR. JAMES M. HESTER (1)
CLIFFORD L. MICHEL (1)
DONALD J. ROBINSON (1)
OFFICERS
WAYNE D. LYSKI, SENIOR VICE PRESIDENT
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT
PATRICIA J. YOUNG, SENIOR VICE PRESIDENT
JEFFREY S. PHLEGAR, VICE PRESIDENT
EDMUND P. BERGAN, JR., SECRETARY
MARK D. GERSTEN, TREASURER & CHIEF FINANCIAL OFFICER
JUAN J. RODRIGUEZ, CONTROLLER
CUSTODIAN
STATE STREET BANK & TRUST COMPANY
225 Franklin Street
Boston, MA 02110
PRINCIPAL UNDERWRITER
ALLIANCE FUND DISTRIBUTORS, INC.
1345 Avenue of the Americas
New York, NY 10105
TRANSFER AGENT
ALLIANCE FUND SERVICES, INC.
P.O. Box 1520
Secaucus, NJ 07096-1520
Toll-Free 1-(800) 221-5672
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
787 Seventh Avenue
New York, NY 10019
LEGAL COUNSEL
SEWARD & KISSEL
One Battery Park Plaza
New York, NY 10004
(1) Member of the Audit Committee.
16
THE ALLIANCE FAMILY OF MUTUAL FUNDS
_______________________________________________________________________________
FIXED INCOME
Alliance Bond Fund
U.S. Government Portfolio
Corporate Bond Portfolio
Alliance Global Dollar Government Fund
Alliance Global Strategic Income Trust
Alliance High Yield Fund
Alliance Mortgage Securities Income Fund
Alliance Limited Maturity Government Fund
Alliance Multi-Market Strategy Trust
Alliance North American Government Income Trust
Alliance Short-Term Multi-Market Trust
Alliance Short-Term U.S. Government Fund
Alliance World Income Trust
TAX-FREE INCOME
Alliance Municipal Income Fund
California Portfolio
Insured California Portfolio
Insured National Portfolio
National Portfolio
New York Portfolio
Alliance Municipal Income Fund II
Arizona Portfolio
Florida Portfolio
Massachusetts Portfolio
Michigan Portfolio
Minnesota Portfolio
New Jersey Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
MONEY MARKET
AFD Exchange Reserves
GROWTH
The Alliance Fund
Alliance Global Environment Fund
Alliance Growth Fund
Alliance Premier Growth Fund
Alliance/Regent Sector Opportunity Fund
GROWTH & INCOME
Alliance Strategic Balanced Fund
Alliance Balanced Shares
Alliance Conservative Investors Fund
Alliance Growth & Income Fund
Alliance Growth Investors Fund
Alliance Income Builder Fund
Alliance Real Estate Investment Fund
Alliance Utility Income Fund
AGGRESSIVE GROWTH
Alliance Global Small Cap Fund
Alliance Quasar Fund
Alliance Technology Fund
INTERNATIONAL
Alliance All-Asia Investment Fund
Alliance Greater China '97 Fund
Alliance International Fund
Alliance International Premier Growth Fund
Alliance New Europe Fund
Alliance Worldwide Privatization Fund
CLOSED-END FUNDS
Alliance All-Market Advantage Fund
ACM Government Income Fund
ACM Government Opportunity Fund
ACM Government Securities Fund
ACM Government Spectrum Fund
ACM Managed Dollar Income Fund
ACM Managed Income Fund
ACM Municipal Securities Income Fund
Alliance World Dollar Government Fund
Alliance World Dollar Government Fund II
The Austria Fund
The Korean Investment Fund
The Spain Fund
The Southern Africa Fund
CASH MANAGEMENT SERVICES
ACM Institutional Reserves
Government Portfolio
Prime Portfolio
Tax-Free Portfolio
Trust Portfolio
Alliance Capital Reserves
Alliance Government Reserves
Alliance Insured Account
Alliance Money Reserves
Alliance Municipal Trust
California Portfolio
Connecticut Portfolio
Florida Portfolio
General Portfolio
Massachusetts Portfolio
New Jersey Portfolio
New York Portfolio
Virginia Portfolio
Alliance Treasury Reserves
Alliance Money Market Fund
Prime Portfolio
Government Portfolio
General Municipal Portfolio
17
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
(800) 221-5672
ALLIANCE CAPITAL
THIS REPORT IS INTENDED SOLELY FOR DISTRIBUTION TO CURRENT SHAREHOLDERS
OF THE FUND.
R THESE REGISTERED SERVICE MARKS USED UNDER LICENSE FROM THE OWNER,
ALLIANCE CAPITAL MANAGEMENT L.P.
USGAR
